Despite a decline in new orders, US factory activity levels off in July but has slowest pace in two years

 

As firms became cautious due to worries about inflation and a future recession, manufacturing activity in the United States expanded at its weakest rate in two years in July. This slowdown was caused by additional losses in new orders. According to a report released on Monday by the Institute for Supply Management, the manufacturing activity index dropped marginally from 53.0 in June to 52.8 in July, the lowest level since June 2020.

The indicator, which is based on a survey of American manufacturers, indicates that activity in the factory sector barely increased over the course of the month as the score came in just beyond the 50.0 point threshold that denotes expansion. The Wall Street Journal surveyed economists who predicted that the index would end up at 52.1. Today’s early data from S&P Global revealed that finished goods inventories have increased for the first time since October 2020. The aggregate factory purchasing managers index for that group in July fell to 52.2, a two-year low.

As the manufacturing sector emerged from a COVID-19-induced downturn, the Institute for Supply Management (ISM) said on Monday that its index of national industrial activity dropped to 52.8 last month, the lowest figure since June 2020.

In June, the ISM PMI index was 53.0. An increase in manufacturing, which makes up 11.9% of the US economy, is indicated by a reading above 50. According to Reuters’ poll of economists, the index was expected to drop to 52.0. The softening is due to rising interest rates as the Federal Reserve attempts to combat persistently high inflation as well as a switch in consumer expenditure from goods to services. The policy rate was increased by another three-quarters of a percentage point by the US central bank last week. That rate has now increased by 225 basis points.

The forward-looking new orders sub-index of the ISM survey fell from a value of 49.2 in June to 48.0 last month. The contraction occurred for the second consecutive month. That predicts a further slowdown in production in the upcoming months when coupled with a consistent decline in order backlogs.

The July gauge of prices paid for commodities used in production fell 18.5 points to the lowest level in nearly two years after remaining very elevated for much of the previous year and a half due to supply and demand imbalances. That represented the biggest loss since 2010, and it was caused by falling prices for metals and crude oil. According to the survey, over 22% of respondents said they paid reduced costs in July, up from 8.3% percent a month earlier.

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